IIFET 2000 Proceedings
The Effects of Unilateral Cost Recovery in an International Fishery
Sean Pascoe, Simon Mardle and Aaron Hatcher
CEMARE, University of Portsmouth, Locksway Road, Southsea PO4 8JF, UK
Abstract: A recent analysis of the potential for management cost recovery in the UK suggested that such a policy would be
detrimental to UK fishers if other European countries did not implement a similar charging policy. Most of the waters
exploited by UK fishers are also exploited by fishers from other European member states, and hence the additional cost
burden on the UK fishers may result in some boats leaving the fishery. In the longer term, the reduced effort may result in
stock recovery, providing increased benefits to the remaining vessels. However, in an international fishery, these benefits
may also accrue to boats that have not been subjected to the cost recovery charge. In this paper, a bioeconomic model of the
English Channel fisheries is used to assess the effects of introducing a unilateral management cost recovery levy on UK boats
on the competitiveness and long term structure of both the UK and French fleets.
Keywords: Cost recovery, bioeconomic model, genetic algorithms
1.
INTRODUCTION
Management cost recovery has been introduced in a range
of countries, including Australia (Department of Primary
Industries and Energy 1994, Kaufmann and Geen 1997),
Canada (Department of Fisheries and Oceans 1995),
Iceland (Arnason 1993), New Zealand (NZ Department of
Fisheries 1997), South Africa (Sea Fisheries 1997), and the
USA (Office of Sustainable Fisheries 1997).1 The system of
cost recovery varies in these countries, but generally is
based on either a percentage of the landed value or a charge
per management unit.
In all these cases, the fisheries are specific to a single
country. While foreign fleets may operate in the exclusive
economic zones of these countries, their activity is heavily
regulated. Further, they are generally charged an access fee
to cover not only the cost of management, but also to
extract an element of resource rent.
The situation facing fisheries in the European Union is
quite different. While the fleets of Member States have
exclusive access to their territorial waters (i.e. the first 12
miles from the low tide mark), most economic activity takes
place in the waters subject to shared access (i.e. beyond the
12 mile zone but within the 200 mile exclusive economic
zone). Fisheries management regulations in this area are
globally imposed at the European level, but the
management and enforcement of these regulations are the
responsibility of the individual Member States. For
example, the UK is responsible for licensing its own fleet,
monitoring its activity and enforcing the catch limits
imposed by the quota system.
At present, management cost recovery in Europe is largely
limited to nominal administration charges for processing
1
A recent review of all of these cost recovery systems is
given in Hatcher and Pascoe (1998) and Andersen et al
(1998).
licences etc. Even these cost are not being recovered in all
Member States. However, the high cost of managing
fisheries relative to their economic contribution (generally
less than 1 per cent of GDP) has called into question the
advisability of continuing these subsidies.
A potential problem arises, however, if only one Member
State introduces a management charge when its fleet
competes with others for a shared stock. While higher costs
are likely to reduce effort with consequent longer-term
economic benefits to the industry, these benefits may not
accrue to the Member State who imposed the charges.
Instead, some (if not most) of these benefits may accrue to
other fleets that do not introduce a charge and do not incur a
subsequent effort reduction. As a result, the incentive is to
wait until after other countries impose management cost
recovery charges.
In this paper, a model of a European fishery (the English
Channel) is used to investigate the effects of imposing
management cost recovery charges on the fleet of one
Member State only (the UK). In particular, the analysis will
focus on the long term effects on fleet structure, and the reallocation of any potential benefits arising from the charges.
2.
COST RECOVERY CHARGES
Cost recovery as a goal in fisheries management is
normally taken to mean charging the users of the resource
for the public costs of management.2 These may include all
the public costs mentioned above, or perhaps just the costs
of administration and enforcement, depending on the views
of policy-makers about who should pay for the provision of
public good services such as research and some
enforcement activity. The rationale for cost recovery is that
fishers are the main beneficiaries of management and hence
the industry should bear at least a part of the costs of
2
See, for example, Kaufmann and Geen (1997).
IIFET 2000 Proceedings
effort). In practice, however, these charges have only been
levied on outputs.
providing these services. The extent to which the industry
should be made to pay for management may, however,
depend upon the views of policy-makers about public
support for private industry in general and for the fishing
industry in particular.
Output or landings taxes (charged on an ad valorem basis)
will in principle reduce revenues for all fishers by the same
proportion and so should be equitable. They should also be
non-distortionary with respect to costs and so should have
no effect on the efficiency of individual firms. Marginal
fishers, however, would again be expected to be forced out
of the fishery to an extent depending on the tax rate set. In
the long run the total value of output would be expected to
be reduced by an amount that would depend on a number of
factors including the cost structure of the firms remaining in
the industry.
There are two principal categories of charges that could be
applied to fishers. These are charges made for access to the
fishery and charges made according to the amount of use of
the fishery resource.
Access charges
Access (or entry) charges are charges which are made
simply for access to the fishery and which therefore take no
account of the actual amount of use that is made of the
resource. An obvious example would be an annual licence
fee.
3.
Access charges are the simplest type of charge to
administer, particularly where entry is already restricted by
means of a licensing scheme. However, the fact that access
charges take no direct account of resource use means that
they run the risk of being inequitable. They tend to have a
proportionately greater financial impact on smaller vessels,
who generally take less of the resource than larger vessels.3
UK MANAGEMENT COSTS AND COST
RECOVERY OPTIONS IN THE ENGLISH
CHANNEL
In 1996-97, the cost of management in the UK were
estimated to be in the order of £45m (Table 1). Ideally,
management cost recovery should aim to recover the
marginal opportunity costs of providing additional services
(Andersen et al 1998). However, in practice this is not
possible. Only total, rather than marginal, cost information
is available. Further, while the UK costs are disaggregated
into main activities, these costs are not identified on a
regional or fishery basis. Hence, it is not possible to
determine if the costs vary from fishery to fishery. As a
result, it is necessary to assume that the costs of
management are equally distributed across the UK, and that
cost recovery can be most efficiently undertaken based of
an average cost per unit of activity in the fishery (rather
than cost per unit of service supplied).
To counter this effect, an annual access charge can be
scaled according to some parameter related to the fixed
costs of effort, such as the size of the vessel or its engine
power (or indeed to the actual capital value of the vessel).
This is the case in Australian fisheries, where the
management cost recovery levy is determined on a per unit
basis4. The levy paid by the fisher is the product of the perunit charge and the number of units attached to the boat.
Any charge that is effectively a variable tax on a particular
component of effort, however, may cause fishers to
substitute the taxed component with a greater input of some
other component that is not taxed. The extent to which such
input substitution might occur, however, will depend on the
constraints imposed by existing management regulations as
well as the cost structure of the industry and the size of the
tax.
Table 1. UK fisheries management costs, 1996-97
Management activity
Monitoring and enforcement
Administration
Research and development
Total
Source: Hatcher and Pascoe (1998)
Use charges
Cost
($m)
£24.2
£4.2
£16.5
£44.9
Given this assumption, an access fee or use charge can be
estimated based on the total UK fleet characteristics and the
total value of landings. In order to recover £45m from the
industry based on the fleet size and value of landings in
1997, Hatcher and Pascoe (1998) estimated that the
alternative charging options need to be either:
Use charges are variable charges which are made according
to the amount of use that is made of the resource. Resource
use, however, may be defined either directly in terms of
output (the amount of fish that is caught and landed) or
indirectly in terms of inputs (one or more components of
x
x
3
This is also true for less skilled fishers or those using less
efficient methods. However, as increasing the efficiency of
the fishery is often a goal of management, such a charge
could be seen as a tool to help achieve this objective.
4
This is a function of hull capacity and engine power.
5
A flat licence fee of £6000 a boat;
A variable licence fee based on the number of
VCUs5, estimated to be £56/VCU;
Vessel Capacity Units – a management unit of capacity
based on engine power and boat size.
2
IIFET 2000 Proceedings
x
x
fleets are subject to some form of license limitation, the
potential to benefit from higher costs in competing fleets is
limited. In this study, a bioeconomic model of the English
Channel fishery that includes long run stock dynamics and
both the UK and French fleets is used to estimate the effects
of imposing a cost recovery level on UK boats only.
An ad valorem charge on value of landings of all
species (7.5%); or
An ad valorem charge on value of landings of
quota species only (10.5%).
The choice of option has a significant effect on the amount
of charges recovered from any particular fishery. For
example, in the English Channel, which is characterised by
a large number of small boats, charging £6000 a boat would
raise about £12.9 million a year in revenue whereas
charging £56/VCU would raise about £5 million a year.
Consequently, a 7.5 per cent landings charge would raise
about £5.25 million a year in revenue while a 10.5 per cent
charge on the value of quota landings would be
approximately £4.2 million a year.
4.
DESCRIPTION OF THE BIOECONOMIC
MODEL
The bioeconomic model of the fishery used in this study
was developed as an optimisation model. A detailed
description of the general economic and biological
relationships underlying the model is given in Pascoe
(2000).
A model of the UK component of the Channel fishery
(Pascoe 1997) was used to assess the effects of these
different charges on the long run structure of the fishery.
An assumption of the model was that the effort expended
by other fleets in the Channel (e.g. the French fleet)
remained constant. The model also did not allow for
increased stock size through reduced effort (although the
non-linear catch effort relationships in the model enabled a
proportionally smaller decrease in catch with decreasing
effort).
The model is comprised of three interacting components: an
effort component, a biological component and an economic
component.
The fishing effort component estimates the level of fishing
effort by fleet, boat length class and métier. The UK and
French fleets are subdivided into 23 sub-fleets based on
their main fishing activities and location. These groups are
further disaggregated into six size classes. These sub-fleets
use differing combinations of seven principal gear types
(beam trawl, otter trawl, mid-water trawl, dredge, lines, nets
and pots). In total, 55 Channel métiers are explicitly
included in the model with the other fishing activities in the
Channel aggregated for the UK and France into 2 extra
métiers. In addition, a further 12 external métier are
included in the model, representing fishing activity that
takes place outside of the Channel by the Channel fleet.
The results of the model suggested that the least
distortionary charge (in terms of relative changes in effort
allocation) was an ad valorem tax on landings. However, as
the charge increased the costs to fishers, total fleet numbers
and catch decreased, requiring an even higher charge to
recover the initial target level of management costs. For all
charges examined, the fleet number decreased in response
to the higher costs.
The biological component of the model calculates the
expected yield for the given level of standardised effort,
using model parameters derived from reference year data
(1993-95). A total of 53 different species (including
separate stocks) are represented in the model. Catches of
each species are estimated based on the level of fishing
activity in each métier and the relative catchability in the
métier.
While not explicitly examined in the original model, it was
recognised that such charges would have adverse
consequences for the competitiveness of UK fishers within
European markets if fishers from other EU countries do not
have to pay similar charges. The resultant effort reduction
in the UK fleet would result, in the long run, in higher
stocks and higher catch rates to all participants in the
fishery, including those who did not incur the higher costs.
As a result, an effect of a unilateral cost recovery charge
may be an increase in economic rents accruing to fleets
from countries that do not impose such charges. Under such
a scenario, the industry in each respective country will no
doubt pressure their governments not to impose such a
charge in the hope that competing nations will impose a
cost recovery charge on their fleets. In such a game,
management costs will not be imposed.
Age structured biological models were developed for 27 of
the species. The models were incorporated as equilibrium
yield-per-recruit models, with the equilibrium stock
structure estimated for the given levels of effort.
Recruitment was assumed constant, based on mean
recruitment levels estimated using VPA (Virtual Population
Analysis). For the remaining 26 species, surplus production
yield curves were estimated from observed catch and effort
levels in the fishery.
The extent to which unilateral management cost recovery
will reduce the competitiveness of a fleet in an international
fishery has yet to be tested empirically. Further, as most
The distribution of effort across the different métiers by
each sub-fleet is assumed fixed, and was based on the
observed distribution of effort of the boats over the period
3
IIFET 2000 Proceedings
1993-95. Many of the different métiers are exploited on a
seasonal basis. It is assumed that the allocation of effort
reflects the changes in abundance and relative profitability
of the activities over the year. As the model has only an
annual time frame, these seasonal effects are not
represented in the model.
the model was run with the objective of revenue
maximisation and the constraint that profits must be nonnegative. This is assumed to provide results consistent with
the long run equilibrium in a regulated open access fishery.
As would be expected, the estimated long run number of
UK boats was less than the current number, with most of
the decrease occurring in the smaller size classes (Figure 1).
The reduction in UK boats was estimated to result in an
increase in economic profits in the French fleet of around 8
per cent, as the reduced effort eases the pressure on the
stocks, resulting in higher average catch rates.
Revenue is estimated based on the level of landings and the
price. Running costs are determined as a function of
revenue and the level of effort while fixed and capital costs
are determined by the fleet size and structure. Revenues and
costs determine the level of economic profits in the fishery,
which in turn determines the optimal fleet size and
configuration. Cost data were derived from economic
surveys of the fishery. Price data were obtained from local
landings statistics and auction markets.
Table 2. Benchmark simulations
Revenue (¼P
x UK
x France
Economic profits (¼P
x UK
x France
Costs recovered (¼P
x UK
x France
Management Costs (¼P
x UK
x France
Total boat numbers
x UK
x France
Total employment
x UK
x France
Several variants of the model were developed, including a
simulation model (Ulrich and le Gallic 1999), and a multiobjective optimisation model (Pascoe and Mardle 1999),
The model used in this analysis was a single objective
optimisation model based on the multi-objective model of
Pascoe and Mardle (1999). The model was used to simulate
the effects of a regulated open access fishery by
maximising revenue subject to the constraint that the profits
of each fleet are non-negative. In addition, upper bound
constraints on boat numbers in each sub-fleet were imposed
on the assumption that the current licensing system would
prevent new entrants (except for replacement boats). As a
result, long run boat numbers would be less than or equal to
the existing number of boat.
5.
Current
Long run
equilibrium
7.5% levy
UK only
155.8
257.6
152.1
261.1
146.6
264.9
-6.1
31.7
0.0
34.1
0.0
36.0
-
-
4.0
-
18.5
15.1
11.6
14.8
6.6
14.8
2054
1674
1285
1646
738
1645
4343
4840
3215
4763
2260
4762
Introducing a levy of 7.5 per cent on the UK fleet was
estimated to result in a further decrease in boat numbers
(Table 2), again mostly smaller boats (Figure 1).7 As a
result, the economic profits of the French fleet increased by
a further 6 per cent.
MODEL SIMULATIONS AND RESULTS
A number of policy simulations were run using the model.
First, the model was run with the current fleet fixed in order
to provide an indication of the current state of the fishery.
From this, the current UK fleet is estimated to be earning an
economic loss while the French fleet is accruing an
economic profit (Table 2). These results are consistent with
recent economic surveys of the fishery (Boncoeur and Le
Gallic 1998, Coglan and Pascoe 2000). While non-labour
costs are roughly equivalent between the French and UK
Channel boats of the same size (Boncoeur et al 2000),
average revenues of the French boats were considerably
higher, particularly for the smaller size classes6.
The reduction in the UK fleet was estimated to result in
lower fishing revenue and hence lower revenue raised from
the levy. However, as the fleet size had decrease,
presumably management costs would have decreased as
well. Assuming that management costs are related to fleet
size, then the ‘cost’ of managing the UK fleet would
decline from ¼P XQGHU WKH FXUUHQW IOHHW VWUXFWXUH WR
¼P XQGHU the estimated long run fleet with the 7.5 per
cent levy8. However, revenue collected by the levy was
estimated to be only ¼P
As the UK fleet is not likely to continue to exist in its
current form in the long run (due to the economic losses),
The model was used to estimate the levy that would need to
be charged in order to achieve the estimated management
costs (which were assumed to be a function of boat
numbers). This required varying the levy until the estimated
6
In 1996-97, the average revenues of French boats under 10
metres in length were between 50 and 90 per cent higher
than equivalent sized UK boats (Boncoeur et al 2000). As
many small UK boats operate on a part time basis, this
difference is largely a result of under-utilisation of the UK
small boat segment.
7
This result differs from that of Hatcher and Pascoe (1998),
who found that such a levy had a lesser impact on the
overall size of the UK fleet.
8
This is based on £6000 a boat (Hatcher and Pascoe 1998).
4
IIFET 2000 Proceedings
levy revenue was equal to the estimated management cost.
From the results, a 10.5 per cent levy on UK revenue would
be required to meet UK management costs. The effects of
such a levy, however, would be to further decrease the size
of the UK fleet (Figure 1), and further increase the profits
of the French fleet (Table 3). Employment in the UK fleet
would be less than 60 per cent of that of the long run
equilibrium (Tables 2 and 3), while employment in the
French fleet would be unaffected.
Boat Numbers
UK fleet
1800
1600
1400
1200
1000
Base Run
U K L ev y 7 .5 %
U K lev y 1 0 .5 %
Bo t h Fleet s 1 0 .5 % lev y
800
600
400
200
0
<10m
Table 3. Effects of 10.5% management levies
Both fleets incur
levy of 10.5%
144.4
266.1
144.4
266.1
0
36.6
0
21.8
5.4
-
5.4
24.8
5.3
14.8
5.3
14.8
592
1645
592
1645
1890
4762
1890
4762
French fleet
Curren t fleet
600
500
400
300
U K lev y 1 0 .5 %
Base Run
U K L ev y 7 .5 %
Bo t h Fleet s 1 0 .5 % lev y
10-20m
>20m
Siz e class
Figure 1. Effects of cost recovery levy on fleet structure
These boats make up over half the UK under 10 metre fleet,
and around one third of the total UK fleet. The persistence
of these boats in the fleet is most likely due to crosssubsidisation by the owners, most of whom either have
other work or are retired. In the model, these boats were not
economically viable in the long run, and hence were largely
removed in the long run equilibrium simulation.
Imposing an equivalent levy on the French fleet, however,
was estimated to have little effect on the size of the French
fleet (Table 3), and hence provide no benefits to the UK
fleet. This was because the French fleet was estimated to be
making an economic surplus in the long run, and the cost
recovery levy just reduced this surplus. If an equivalent
levy was imposed on the French fleet, then the resultant
revenue would exceed the estimated costs of management
(based on the UK measure). Hence, an equivalent levy
(10.5%) on the French boats would effectively contain a
resource rent charge. As these boats are estimated to be
making an economic surplus, such a charge may be
justified. However, the equity argument for imposing an
equivalent charge becomes distorted, as the UK boats are
charged for management costs only.
6.
900
800
700
<10m
Total employment
x UK
x France
>20m
200
100
0
Total boat numbers
x UK
x France
10-20m
Siz e class
Boat Numbers
Revenue (¼P
x UK
x France
Economic profits (¼P
x UK
x France
Costs recovered (¼P
x UK
x France
Management Costs (¼P
x UK
x France
Management revenue
equals management
costs (UK only)
levy 10.5%
Curren t fleet
As these boats are most likely cross-subsidised, it is not
likely that they would all leave the fishery in the long run,
as the owners may get some non-market benefit by
remaining in the fishery. However, these boats no doubt
add to the cost of fisheries management. If costs are
proportional to boat numbers, then the costs of managing
these boats no doubt exceeds the market benefits they
generate, and may even exceed any non-market benefits to
their owners.
Levying a charge on these boats would result in most of
them becoming more unprofitable, and may result in the
large reduction in boat numbers estimated using the model.
This raises the issue as to whether the UK wishes to have a
smaller professional fleet, or a larger fleet that adds little
direct economic value, but may add indirect value through
maintaining the illusion that many small coastal
communities are fishing communities, hence attracting
tourism to the area. This is an issue that is well beyond the
scope of this study.
DISCUSSION AND CONCLUSIONS
The results in this study are preliminary, but highlight some
of the interesting challenges for management cost recovery
in Europe.
In the UK, many of the smaller boats operate on a part time
basis. Pascoe (1997) estimated that around 90 per cent of
UK boats under 7 metres were operated on a part time
basis.
As would be expected, the imposition of a levy on the UK
fleet made these boats less competitive in the model,
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IIFET 2000 Proceedings
resulting in a reduction in their numbers. Also as expected,
the reduction in UK fleet numbers was estimated to have a
direct benefit to the French fleet, who were not subject to
any levy. In such a case, it is unlikely that a management
cost recovery scheme could be implemented unilaterally as
the UK fishing industry would vehemently oppose a policy
that was both to their detriment and to the benefit of another
EU member state.
UK interests, but also the interests of the French fleet who
are sharing the resource.
For effective cost recovery in international fisheries, such
as those in European waters, management must be coordinated and the total cost of all management services (i.e.
from all countries) needs to be shared proportionally (and
equitably) between all participants. This effectively requires
fisheries to be managed regionally, with one co-ordinating
body having overall management jurisdiction for the fishery
being managed. Under the current European management
framework, this is not possible. As a result, it is unlikely
that cost recovery will be implemented in European
fisheries until such a management structure can be
developed.
An unexpected result was that imposing an equivalent levy
on the French fleet did not have any impact on this fleet.
This was largely because the fleet as a whole were making
a profit greater than the levy revenue collected.
This last result may be an artefact of the model. Because of
the large number of non-linearities in the model, individual
boat group profits could not be estimated directly within the
optimisation procedure. Instead, only an aggregate UK and
French profit could be estimated separately. Hence, the
constraint placed on the model was that total profits of each
fleet were greater than zero. As a result, fleet segments that
were profitable could offset those that made a loss once a
levy was introduced, resulting in no loss in boat numbers.
Consequently, some adjustment in the French fleet may
have been observed in the model results had individual
profits been constrained to be non-negative.9
The model results presented here should be considered only
indicative of the effects of implementing a unilateral cost
recovery levy on the UK fleet operating in the English
Channel. Nevertheless, the model results do reinforce the
conclusion that unilateral cost recovery in an international
fishery is unlikely to take place.
7.
ACKNOWLEDGEMENT
The model used in this study was developed as part of an
EU funded project ‘Bioeconomic modelling of the fisheries
of the English Channel’ FAIR-CT96-1993.
The analysis has not looked at the efficiency of
management. An assumption has been that the costs of
management are given, and that these could not be reduced
through more effective management strategies. Andersen et
al (1998) suggested that who pays and how they pay
influence the actual costs of management. Public provision
of management services may lead to inefficient use of
research and excessive levels of enforcement resources
(Andersen et al 1998). Further, the analysis has not looked
at how much of the costs of management should be borne
by fishers. Department of Primary Industries and Energy
(1994) concluded that not all costs of management are
attributable to fishers, as some have a public good element.
This includes some research and enforcement activities.
8.
REFERENCES
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alternative methods of financing management, in
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Vassdal, eds, Norwegian College of Fisheries
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Imposing a management charge on a country basis in an
international fishery may not be appropriate as differences
in the supply of management services will affect the costs,
and hence competitiveness of the individual fleets. Further,
the benefits of effective management at the country level
also accrue to the other participants in the fishery. For
example, enforcement activities by the UK not only protect
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System, Paper presented at the Conference on
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9
A version of the model using a genetic algorithm (rather
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